• Web.com Reports First Quarter 2018 Financial Results

    Source: Nasdaq GlobeNewswire / 03 May 2018 16:05:42   America/New_York

    • Strong financial and operating performance exceeding revenue and profitability guidance
    • Completed debt refinancing extending maturity and increasing liquidity and flexibility

    JACKSONVILLE, Fla., May 03, 2018 (GLOBE NEWSWIRE) -- Web.com Group, Inc. (NASDAQ:WEB), the marketing partner for businesses wanting to connect with more customers and grow, today announced results for the first quarter ended March 31, 2018.   

    "Web.com delivered solid first quarter financial results with both revenue and profitability that exceeded the high end of our guidance ranges.  We made progress against each of our key initiatives for the year and have a well-defined plan to drive additional improvements as we move through 2018.  We are confident that successfully executing on these initiatives will enable us to deliver greater value for both customers and shareholders," said David L. Brown, chairman, chief executive officer and president of Web.com.

    Brown added, "In addition, our recent debt refinancing strengthens our capital structure and enables us to optimize our capital deployment strategy with an expanded and flexible credit facility.  Overall, we are off to a solid start to the year, and we believe we are well positioned to deliver against our long term goals."

    Summary of First Quarter 2018 Financial Results:

    • Total revenue, calculated in accordance with U.S. generally accepted accounting principles (GAAP), was $186.7 million for the first quarter of 2018, compared to $185.1 million for the first quarter of 2017. Non-GAAP revenue was $187.8 million for the first quarter of 2018, compared to $186.8 million in the comparable prior year period. Results exceeded the high end of both GAAP and non-GAAP revenue guidance of $183.0 to $186.0 million and $184.0 to $187.0 million, respectively.
       
    • GAAP operating income was $15.5 million for the first quarter of 2018, representing a 8% GAAP operating margin, compared to $20.5 million, representing a 11% GAAP operating margin, for the first quarter of 2017.  Non-GAAP operating income was $37.5 million for the first quarter of 2018, representing a 20% non-GAAP operating margin, compared to $41.6 million for the first quarter of 2017, representing a 22% non-GAAP operating margin.
       
    • GAAP net income was $4.6 million, or $0.09 per diluted share, for the first quarter of 2018, representing a 2% GAAP net income margin.  GAAP net income was $6.5 million, or $0.13 per diluted share, for the first quarter of 2017, representing a 4% GAAP net income margin.
       
    • Adjusted EBITDA was $42.8 million for the first quarter of 2018, representing an adjusted EBITDA margin of 23%, surpassing the high end of the Company's adjusted EBITDA guidance of $40.5 to $42.5 million.  The Company had adjusted EBITDA of $47.2 million for the first quarter of 2017, representing a 25% adjusted EBITDA margin. 
       
    • The Company generated cash from operations of $27.2 million for the first quarter of 2018, compared to $33.2 million of cash flow from operations for the first quarter of 2017.

    First Quarter Operating Highlights:

    • Web.com's total net subscribers were approximately 3,349,000 at the end of the first quarter of 2018, declining approximately 62,000 from the end of the fourth quarter of 2017. 
       
    • Web.com's average revenue per user (ARPU) was $18.34 for the first quarter of 2018 compared to $17.67 for the first quarter of 2017.  ARPU declined sequentially during the first quarter of 2018 from $18.38 during the fourth quarter of 2017.
       
    • Web.com's trailing twelve month customer retention rate was 85.5% for the first quarter of 2018.

    Conference Call Information
    Management will host a conference call today, May 3, 2018, at 5:00 p.m. ET, to discuss Web.com's first quarter financial results and current business outlook. There will be an accompanying slide presentation which will be available on the Investor Relations page of Web.com's website  (http://ir.web.com), along with a live webcast and replay of the call. To access the call, dial 800-289-0438 (domestic) or 323-794-2423 (international). A replay of this conference call will be available until May 17, 2018, at 844-512-2921 (domestic) or 412-317-6671 (international). The replay conference ID is 8690366.

    About Web.com
    Since 1997 Web.com (Nasdaq: WEB) has been the marketing partner for businesses wanting to connect with more customers and grow. We listen, then apply our expertise to deliver solutions that owners need to market and manage their businesses, from building brands online to reaching more customers or growing relationships with existing customers. For some, this means a fast, reliable, attractive website; for others, it means customized marketing plans that deliver local leads; and for others, it means customer-scheduling or customer-relationship marketing (CRM) tools that help businesses run more efficiently. Owners from big to small can focus on running the companies they know while we handle the marketing they need. To learn how this global company collaborates with customers and employees to achieve their potential, explore www.web.com or follow on Twitter at @webdotcom or on Facebook at www.facebook.com/web.com

    Note to Editors: Web.com is a registered trademark of Web.com Group, Inc.

    Use of Non-GAAP Financial Measures

    Some of the measures in this press release are non-GAAP financial measures within the meaning of the SEC Regulation G. Web.com believes presenting non-GAAP measures is useful to investors, because it describes the operating performance of the Company, in ways that management views or uses to assess the performance of the Company. Web.com's management uses these non-GAAP measures as important indicators of the Company's past performance and in planning and forecasting performance in future periods. The non-GAAP financial information Web.com presents may not be comparable to similarly-titled financial measures used by other companies, and investors should not consider non-GAAP financial measures in isolation from, or in substitution for, financial information presented in compliance with GAAP.

    You are encouraged to review the reconciliation of non-GAAP financial measures to GAAP financial measures included elsewhere in this press release.

    Relative to each of the non-GAAP measures Web.com presents, management further sets forth its rationale as follows:

    • Non-GAAP Revenue. Web.com excludes from non-GAAP revenue the impact of the fair value adjustment to amortized deferred revenue because management believes that excluding such measures helps management and investors better understand the Company's revenue trends.

    • Non-GAAP Operating Income and Non-GAAP Operating Margin. Web.com excludes from non-GAAP operating income and non-GAAP operating margin, amortization of intangibles, asset impairment,  stock-based compensation charges, restructuring expenses, corporate development expenses and fair value adjustment to deferred revenue and deferred expense because management believes that adjusting for such measures helps management and investors better understand the Company's operating activities.

    • Adjusted EBITDA and Adjusted EBITDA Margin. Web.com excludes from adjusted EBITDA and adjusted EBITDA margin depreciation and amortization expense, loss on sale of assets, asset impairment, income tax provision, interest expense, interest income, stock-based compensation, fair value adjustments to deferred revenue and deferred expense, corporate development expenses and restructuring expenses, because management believes that excluding such items helps investors better understand the Company's operating activities.

    • Non-GAAP Cost of Revenue (excluding depreciation and amortization). Web.com excludes from non-GAAP cost of revenue (excluding depreciation and amortization) the fair value adjustment to deferred expense and stock based compensation charges because management believes that adjusting for such measures helps management and investors better understand the company's operating activities.

    • Free Cash Flow. Free cash flow is a non-GAAP financial measure that Web.com uses and defines as net cash provided by operating activities less capital expenditures. The Company considers free cash flow to be a liquidity measure which provides useful information to management and investors about the amount of cash generated by the business after the acquisition of property and equipment, which can then be used for investment opportunities.

    In respect of the foregoing, Web.com provides the following supplemental information to provide additional context for the use and consideration of the non-GAAP financial measures used elsewhere in this press release:

    • Stock-based compensation. These expenses consist of expenses for employee stock options and employee awards under Accounting Standards Codification ("ASC") 718-10. While stock-based compensation expense calculated in accordance with ASC 718-10 constitutes an ongoing and recurring expense, such expense is excluded from non-GAAP results because such expense is not used by management to assess the core profitability of the Company's business operations. Web.com further believes these measures are useful to investors in that they allow for greater transparency to certain line items in the Company's financial statements. In addition, when management performs internal comparisons to Web.com's historical operating results and compares the Company's operating results to the Company's competitors, management excludes this item from various non-GAAP measures.

    • Amortization of intangibles. Web.com incurs amortization of acquired intangibles under ASC 805-10-65. Acquired intangibles primarily consist of customer relationships, customer lists, non-compete agreements, trade names, and developed technology. Web.com expects to amortize for accounting purposes the fair value of the acquired intangibles based on the pattern in which the economic benefits of the intangible assets will be consumed as revenue is generated. Although the intangible assets generate revenue, the Company believes the non-GAAP financial measures excluding this item provide meaningful supplemental information regarding the Company's operational performance. In addition, when management performs internal comparisons to Web.com's historical operating results and compares the Company's operating results to the Company's competitors, management excludes this item from various non-GAAP measures.

    • Depreciation expense. Web.com records depreciation expense associated with its fixed assets. Although its fixed assets generate revenue for Web.com, the item is excluded because management believes certain non-GAAP financial measures excluding this item provide meaningful supplemental information regarding the Company's operational performance. In addition, when management performs internal comparisons to Web.com's historical operating results and compares the Company's operating results to the Company's competitors, management excludes this item from various non-GAAP measures.

    • Restructuring expense. Web.com has recorded restructuring expenses and excludes the impact of these expenses from its non-GAAP measures, because such expense is not used by management to assess the core profitability of the Company's business operations.

    • Fair value adjustment to deferred revenue and deferred expense. Web.com has recorded a fair value adjustment to acquired deferred revenue and deferred expense in accordance with ASC 805-10-65. Web.com excludes the impact of these adjustments from its non-GAAP measures, because doing so results in non-GAAP revenue and non-GAAP net income which are reflective of ongoing operating results and more comparable to historical operating results, since the majority of the Company's revenue is recurring subscription revenue. Excluding the fair value adjustment to deferred revenue and deferred expense therefore facilitates management's internal comparisons to Web.com's historical operating results.

    • Corporate development expenses. Web.com incurred expenses relating to acquisitions and the successful integration of acquisitions. Web.com excludes the impact of these expenses from its non-GAAP measures, because such expense is not used by management to assess the core profitability of the Company's business operations.

    • Gains or losses from asset sales or impairment and certain other transactions. Web.com excludes the impact of asset sales or impairment and certain other transactions including debt extinguishments and the sale of equity method investment from its non-GAAP measures because the impact of these items is not considered part of the company's ongoing operations.

    • Monthly average revenue per user, or ARPU.  ARPU is a metric the Company measures on a quarterly basis. The Company defines ARPU as quarterly non-GAAP subscription revenue divided by the average of the number of subscribers at the beginning of the quarter and the number of subscribers at the end of the quarter, divided by three months. The Company excludes from subscription revenue the impact of the fair value adjustments to deferred revenue resulting from acquisition-related write downs.

    Forward-Looking Statements
    This press release includes "forward-looking statements" including, without limitation, the statements regarding whether Web.com making progress on its plan to drive additional improvements to its key initiatives will enable it to deliver greater value to customers and shareholders, and the refinancing of its debt will enable Web.com to optimize its capital deployment strategy.  As a result of the ultimate outcome of such risks and uncertainties, Web.com's actual results could differ materially from those anticipated in these forward-looking statements. These statements are based on Web.com's current beliefs or expectations, and there are a number of important factors that could cause the actual results or outcomes to differ materially from those indicated by these forward-looking statements, including, without limitation, risks related to the successful offering of the products and services of Web.com; and other risks that may impact Web.com's business. Other risk factors are set forth under the caption, "Risk Factors," in Web.com's Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission, which are available on a website maintained by the Securities and Exchange Commission at www.sec.gov. Web.com expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein as a result of new information, future events or otherwise.

    Contacts

    Investors:
    Ira Berger
    904-680-6909
    Ira.Berger@web.com          

    Media:
    Brian Wright
    904-371-6856
    Brian.Wright@web.com 

    Source:  Web.com

     
     
    Web.com Group, Inc.
    Consolidated Statements of Comprehensive Income
    (in thousands, except for per share data)
    (unaudited)
     
     Three months ended March 31,
     2018 2017
        
    Revenue$186,741  $185,118 
        
    Cost of Revenue and Operating Expenses:   
    Cost of revenue (excluding depreciation and amortization)62,714  57,922 
    Sales and marketing51,579  50,911 
    Technology and development20,001  17,001 
    General and administrative16,605  19,843 
    Restructuring expense2,703  322 
    Asset Impairment93  143 
    Depreciation and amortization17,514  18,433 
    Total cost of revenue and operating expenses171,209  164,575 
    Income from operations15,532  20,543 
        
    Interest expense, net(8,760) (7,891)
    Net income before income taxes6,772  12,652 
    Income tax expense(2,196) (6,134)
    Net income$4,576  $6,518 
        
    Other comprehensive income:   
    Foreign currency translation adjustments(64) 598 
    Unrealized gain on investments, net of tax  1 
    Total comprehensive income$4,512  $7,117 
        
    Basic earnings per share:   
    Net income per basic common share$0.10  $0.13 
    Diluted earnings per share:   
    Net income per diluted common share$0.09  $0.13 
        
        


    Web.com Group, Inc. 
    Consolidated Balance Sheets 
    (in thousands, except share amounts) 
          
      March 31, 2018   
    Assets (unaudited)  December 31, 2017 
          
    Current assets:     
    Cash and cash equivalents $9,660  $11,976  
    Accounts receivable, net of allowance of $1,548 and $1,454, respectively 27,160  25,424  
    Prepaid expenses 17,852  10,220  
    Deferred expenses 65,444  63,267  
    Other current assets 3,627  3,054  
    Total current assets 123,743  113,941  
          
    Property and equipment, net 56,280  57,188  
    Deferred expenses 49,262  46,316  
    Goodwill 885,257  885,662  
    Intangible assets, net 359,338  371,571  
    Other assets 21,791  21,565  
    Total assets $1,495,671  $1,496,243  
          
    Liabilities and stockholders' equity     
    Current liabilities:     
    Accounts payable $21,039  $23,357  
    Accrued expenses 13,809  15,957  
    Accrued compensation and benefits 13,268  15,560  
    Deferred revenue 241,429  233,574  
    Current portion of debt 24,943  16,612  
    Deferred consideration 581  22,466  
    Other liabilities 7,463  6,321  
    Total current liabilities 322,532  333,847  
          
    Deferred revenue 186,825  185,886  
    Long-term debt 625,403  630,358  
    Deferred tax liabilities 53,809  51,042  
    Other long-term liabilities 21,288  20,474  
    Total liabilities 1,209,857  1,221,607  
    Stockholders' equity:     
    Common stock, $0.001 par value per share: 150,000,000 shares authorized,  49,437,051  and 48,845,352 shares
    issued and outstanding at March 31, 2018 and December 31, 2017, respectively
     49  49  
    Additional paid-in capital 584,979  585,179  
    Treasury stock at cost,  4,170,867  and 4,305,221 shares at March 31, 2018 and December 31, 2017, respectively (107,521) (111,093) 
    Accumulated other comprehensive loss (4,567) (4,503) 
    Accumulated deficit (1) (187,126) (194,996) 
    Total stockholders' equity 285,814  274,636  
    Total liabilities and stockholders' equity $1,495,671  $1,496,243  
      
    (1) The Company adopted Accounting Standards Update ("ASU") 2014-09 on January 1, 2018 using the modified retrospective transition method and recorded a $3.3 million adjustment for previously unrecognized costs to acquire contracts in opening accumulated deficit on January 1, 2018. 
      
      


    Web.com Group, Inc.
    Consolidated Statements of Cash Flows
    (in thousands)
    (unaudited)
      
     Three months ended March 31,
     2018 2017
    Cash flows from operating activities   
    Net income$4,576  $6,518 
    Adjustments to reconcile net income to net cash provided by operating activities:   
    Depreciation and amortization17,514  18,433 
    Stock based compensation5,774  5,557 
    Deferred income taxes1,713  5,674 
    Amortization of debt issuance costs and other3,771  3,697 
    Loss on sale of assets12   
    Asset impairment93  143 
    Changes in operating assets and liabilities:   
    Accounts receivable, net(1,740) 2,985 
    Prepaid expenses and other assets(8,009) (6,868)
    Deferred expenses(764) (1,694)
    Accounts payable(1,570) (6,156)
    Accrued expenses and other liabilities(838) 2,583 
    Accrued compensation and benefits(2,294) (5,286)
    Deferred revenue8,927  7,602 
    Net cash provided by operating activities27,165  33,188 
        
    Cash flows from investing activities   
    Business acquisitions, net of cash acquired(18) (8,587)
    Capital expenditures(5,015) (5,179)
    Net cash used in investing activities(5,033) (13,766)
        
    Cash flows from financing activities   
    Stock issuance costs(1) (3)
    Common stock repurchased(3,632) (3,360)
    Payments of long-term debt  (2,438)
    Payments of revolving credit facility(14,000)  
    Proceeds from exercise of stock options1,229  4,416 
    Deferred consideration payment(22,000) (18,933)
    Proceeds from borrowings on revolving credit facility14,000  7,000 
    Common stock purchases under stock repurchase plan  (2,081)
    Net cash used in financing activities(24,404) (15,399)
        
    Effect of exchange rate changes on cash(43) (2)
        
    Net (decrease) increase in cash, cash equivalents and restricted cash(2,315) 4,021 
    Cash, cash equivalents and restricted cash, beginning of period16,886  25,773 
    Cash, cash equivalents and restricted cash, end of period$14,571  $29,794 
     
     
    Web.com Group, Inc.
     Consolidated Statement of Cash Flows
     (in thousands)
    (Unaudited)
     
     Three months ended
    March 31, 
      2018  2017
    Supplemental cash flow information   
    Interest paid$5,640  $4,961 
    Income taxes paid, net$387  $361 
        
    In fiscal 2017, we adopted ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and restricted cash and cash equivalents. Prior year amounts have been restated to reflect the adoption which increased the beginning and end of period cash, cash equivalents and restricted cash at December 31, 2016 and March 31, 2017, respectively by approximately $5.3 million each from the previously as filed amounts.
     
     


    Web.com Group, Inc.
    Reconciliations of GAAP to Non-GAAP Results
    (in thousands, except for per share data)
    (unaudited)
      
     Three months ended March 31,
      2018 2017
    Reconciliation of GAAP revenue to non-GAAP revenue   
    GAAP revenue$186,741  $185,118 
    Fair value adjustment to deferred revenue 1,095  1,710 
    Non-GAAP revenue$187,836  $186,828 
        
    Reconciliation of GAAP operating income to non-GAAP operating income   
    GAAP operating income$15,532  $20,543 
    Amortization of intangibles 12,245  12,880 
    Loss on sale of assets 12   
    Asset impairment 93  143 
    Stock based compensation 5,774  5,557 
    Restructuring expense 2,703  322 
    Corporate development 67  417 
    Fair value adjustment to deferred revenue 1,095  1,710 
    Fair value adjustment to deferred expense 26  57 
    Non-GAAP operating income$37,547  $41,629 
        
    Reconciliation of GAAP operating margin to non-GAAP operating margin   
    GAAP operating margin 8% 11%
    Amortization of intangibles 7  7 
    Loss on sale of assets    
    Asset impairment    
    Stock based compensation 3  3 
    Restructuring expense 1   
    Corporate development    
    Fair value adjustment to deferred revenue 1  1 
    Fair value adjustment to deferred expense    
    Non-GAAP operating margin 20% 22%
        
          
    Web.com Group, Inc.
    Reconciliation of GAAP to Non-GAAP Results
    (in thousands, except for per share data)
    (unaudited)
     Three months ended March 31,
     2018
     2017
    Reconciliation of GAAP net income to adjusted EBITDA     
    GAAP net income$4.576  $6,518 
    Depreciation & Amortization 17,514  18,433 
    Loss on sale of assets 12   
    Asset impairment 93  143 
    Stock based compensation 5,774  5,557 
    Restructuring expense 2,703  322 
    Corporate development 67  417 
    Fair value adjustment to deferred revenue 1,095  1,710 
    Fair value adjustment to deferred expense 26  57 
    Interest expense, net 8,760  7,891 
    Income tax expense 2,196  6,134 
    Adjusted EBITDA$42,816  $47,182 
        
    Reconciliation of GAAP net income margin to adjusted EBITDA margin   
    GAAP net income margin 2% 4%
    Depreciation & Amortization 9  9 
    Loss on sale of assets    
    Asset impairment    
    Stock based compensation 3  3 
    Restructuring expense 1   
    Corporate development    
    Fair value adjustment to deferred revenue 1  1 
    Fair value adjustment to deferred expense    
    Interest expense, net 6  5 
    Income tax expense 1  3 
    Adjusted EBITDA margin 23% 25%
        
        
    Reconciliation of net cash provided by operating activities to free cash flow   
    Net cash provided by operating activities$27,165  $33,188 
    Capital expenditures (5,015) (5,179)
    Free cash flow$22,150  $28,009 
        
    Net cash used in investing activities$(5,033) $(13,766)
    Net cash used in financing activities$(24,404) $(15,399)
            
            


    Web.com Group, Inc.
    Reconciliations of GAAP to Non-GAAP Results
    (in thousands, except for per share data)
    (unaudited)
          
     Three months ended March 31,  
     2018 2017  
    Reconciliation of GAAP cost of revenue (excluding depreciation and amortization) to non-GAAP cost of revenue (excluding depreciation and amortization)     
    Cost of revenue (excluding depreciation and amortization)$62,714  $57,922   
    Less:  Fair value adjustment to deferred expenses(26) (57)  
    Less:  Stock based compensation(260) (270)  
    Non-GAAP cost of revenue (excluding depreciation and amortization)$62,428  $57,595   
          
          
     Three months
    ended March 31,
    2018
     Three months
    ended March 31,
    2017
     Three months
    ended December
    31, 2017
    Reconciliation of GAAP revenue to non-GAAP subscription revenue used in ARPU     
    GAAP revenue$186,741  $185,118  $188,845 
    Fair value adjustment to deferred revenue1,095  1,710  2,289 
    Non-GAAP revenue$187,836  $186,828  $191,134 
    Professional services and other revenue(1,845) (1,771) (1,806)
    Non-GAAP subscription revenue used in ARPU$185,991  $185,057  $189,328 
    Average subscribers (in thousands)3,380  3,490  3,434 
    ARPU (Non-GAAP subscription revenue per subscriber over 3 month period)$18.34  $17.67  $18.38 
          
          
    Reconciliation of GAAP revenue to non-GAAP revenueGuidance for three months ended
    March 31, 2018 as of February 8, 2018
      
    GAAP revenue$183,000 -$186,000   
    Fair value adjustment to deferred revenue1,000  1,000   
    Non-GAAP revenue$184,000 -$187,000   
              

    Note that the Company has not reconciled Adjusted EBITDA guidance to GAAP net income because it does not provide guidance on GAAP net income or the reconciling items between Adjusted EBITDA and net income as a result of the substantial uncertainty regarding, and the potential substantial variability of, these items.  The actual amount of net income and such responding reconciling items will have a significant effect on Adjusted EBITDA.  Accordingly a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measure is not available without unreasonable effort.

     
     
    Web.com Group, Inc.
    Supplemental Information
    (in thousands, except for per share data)
    (unaudited)
      
     Three months ended March 31,
     2018 2017
    Stock based compensation   
    Cost of revenue$260  $270 
    Sales and marketing1,508  1,368 
    Technology and development1,134  1,001 
    General and administrative2,872  2,918 
    Total$5,774  $5,557 
        
    Revenue   
    Subscription$184,896  $183,347 
    Professional services and other1,845  1,771 
    Total$186,741  $185,118 
        
    Other Information   
    Non-GAAP operating income$37,547  $41,629 
    GAAP interest expense, net$8,760  $7,891 
    Amortization of debt issuance costs and other$3,771  $3,697 
    Income taxes paid$387  $361 
    GAAP diluted weighted average common shares49,066  50,800 
        

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